What is a Flexible Life Interest Trust?

Flexible Life Interest Trusts (also known as FLITs) are an interesting mix of 2 different trust types; a Life Interest Trust and a Discretionary Trust.

They are really effective tools to use for anyone who wants everything in their residuary estate to be available for their surviving spouse or Civil Partner but also for their residuary estate to eventually be protected for their children after the death of the surviving spouse. Below is a video that helps explain it for you.

These trusts, on first death, start of as Life Interest Trusts so everything in the name of the deceased is available for the use for the surviving spouse or civil partner, this element also benefits from any available spousal exemptions from Inheritance Tax. There are no periodic (10 year anniversary) charges and no exit charges whilst the surviving spouse is still alive (unless they give up their interest during the trust period).

On the death of the surviving spouse, any tax payable is calculated using the trust fund value and the value of the second death’s estate (the estate of the Life Tenant). If any IHT is due at this point then the trust fund pays a proportionate amount.

Once IHT has been paid, the rest of the FLIT becomes a Discretionary Trust for the potential beneficiaries named in the trust element of the will, usually their children.

The Discretionary Trust lasts for the usual 125 years and so can benefit many generations of bloodline.

Any assets can go into the trust as long as they were in the name of the deceased and had no debt secured against them.

FLITs can be used to protect against all sorts of potential causes of loss such as remarriage, long term care costs, debts and future changes in the will of the surviving spouse as the assets in the trust remain under the control of the trustees. The way the will is usually structured is giving any specific gifts of items or cash first then the whole of the residuary estate going into the FLIT to benefit the surviving spouse. If there’s a FLIT in the will on second death then the Life Interest element of that trust simply doesn’t take effect and the trust commences as a Discretionary Trust.

If you think that this type of trust will suit your family situation we’d be very happy to talk to you about it, please give us a call during normal office hours.